Decentralisation Champions — Unpacking Lido and Rocket Pool's Innovations in Ethereum Staking

Introduction

The blockchain landscape is continually evolving, with Ethereum leading the charge as a platform for decentralized applications. Ethereum 2.0 has introduced staking, a significant feature that has given rise to several staking protocols. This article presents an in-depth comparison of two such protocols, Lido and Rocket Pool, focusing on their history, utility, metrics, development, and current status.

Lido: Pioneering Liquid Staking

Lido, launched in December 2020, a few weeks after the Ethereum 2.0 Beacon Chain went live, is a liquid staking protocol that allows Ethereum (ETH) holders to stake their assets and earn rewards while retaining the liquidity of their ETH.

Lido's Utility and Metrics

Lido users deposit their ETH into the Lido staking pool and receive stETH tokens in return. These ERC-20 tokens represent the user's staked ETH and can be used to earn rewards, trade on decentralized exchanges, or participate in DeFi applications. As of March 2023, Lido has over 4 million ETH staked, representing over 10% of the total ETH staked on the Ethereum network. However, six weeks post Ethereum Shapella Hard Fork, Lido's market share in Liquid Staking Derivative (LSD) has seen a slight decrease of 0.84% source.

Lido's Development and Community

Lido's development is led by P2P Validator and Certus One, two well-known entities in the staking-as-a-service industry. Lido's mainnet went live in December 2020. Lido's GitHub page shows 163 repositories and 274 followers, indicating a robust and engaged developer community. The most used languages are TypeScript, Python, JavaScript, Go, and Solidity, reflecting a diverse set of skills and technologies being used.

Rocket Pool: Democratizing Ethereum Staking

Rocket Pool, founded in 2016 by David Rugendyke, is a decentralized staking protocol that allows users to stake their Ethereum and earn rewards without the need to run their own validator node. Warwick, a software engineer and entrepreneur, and George, a software engineer, and entrepreneur, created Rocket Pool to meet the growing demand for decentralized staking solutions.

Rocket Pool's Utility and Metrics

Users deposit their ETH into the Rocket Pool staking pool and receive rETH tokens in return. Like Lido's stETH, rETH is an ERC-20 token representing the user's staked ETH. Rocket Pool is a permissionless protocol, meaning anyone can become a validator by depositing 16 ETH and 1.6 ETH worth of RPL tokens, the native token of Rocket Pool. As of May 2023, Rocket Pool has seen significant growth in its rETH supply, which has grown 20.7% to 361,012, representing an annualized growth of 540%. Additionally, Rocket Pool's market share in LSD has seen a substantial increase of 32.87% six weeks post the Ethereum Shapella Hard Fork source.

Rocket Pool's Development and Community

Rocket Pool's mainnet launch has been eagerly anticipated by the Ethereum community and was expected to go live in 2021. Rocket Pool has also introduced an 8ETH mini-pool, making it more accessible for users to become validators. This development has been well-received by the community and has contributed to Rocket Pool'sgrowth. Rocket Pool's GitHub page shows 44 repositories and 123 followers, indicating an active developer community. The most used languages are JavaScript, Go, Solidity, Python, and TypeScript, similar to Lido's.

Rocket Pool Takes Off to zkSync Era

In a recent development that has sent ripples across the Ethereum community, Rocket Pool announced its deployment on the zkSync Era. This significant milestone marks the first deployment of an Ethereum liquid staking protocol on the recently launched zkSync Era network. This development is expected to bring numerous benefits to Rocket Pool's users, including faster transaction speeds, lower costs, and enhanced security, thanks to zkSync's zero-knowledge proofs.

Rocket Pool's move to the zkSync Era demonstrates its commitment to reducing barriers to entry and ensuring widespread participation in Ethereum's proof-of-stake system. It also signals Rocket Pool's ongoing exploration of how zero-knowledge proofs can be used in other parts of the protocol to enhance decentralized security. The potential benefits include lower costs, increased efficiency, and a more streamlined system.

While Rocket Pool is currently deployed on optimistic rollups Arbitrum and Optimism, the team remains cautious about deploying on new networks. The primary factors considered when choosing a network for launch are shared core values and a commitment to fostering growth and scalability while maintaining security and decentralization.

This move by Rocket Pool represents a significant step forward in the Ethereum ecosystem, and it will be interesting to see how this development influences the future of Ethereum liquid staking. As the Ethereum ecosystem continues to evolve, Rocket Pool's innovative approach and commitment to decentralization position it as a key player in the future of Ethereum staking.

Risks Associated with Lido and Rocket Pool

While Lido and Rocket Pool offers innovative solutions to Ethereum staking, they are not without risks. The primary risk associated with both protocols is smart contract risk. Both Lido and Rocket Pool rely on smart contracts to automate the staking process. If there are bugs or vulnerabilities in these smart contracts, users' funds could be at risk.

Another risk is the slashing risk. In Ethereum 2.0, validators who act maliciously or fail to stay online can have their staked ETH slashed. While both Lido and Rocket Pool have mechanisms in place to mitigate this risk, it cannot be entirely eliminated.

Finally, there is the risk of centralization. While both Lido and Rocket Pool aims to be decentralized, there is a risk that a small number of large validators could dominate the network. This could lead to centralization, which would undermine the security and trustlessness of the Ethereum network.

Centralization vs. Decentralization Metrics

While both Lido and Rocket Pool has made efforts to ensure that their protocols are as decentralized as possible, there are concerns about centralization, particularly with Lido. Some Ethereum community members believe that if the community wants to decrease Lido's dominance, they need to create and promote better liquid staking protocols, and then vampire attack Lido with them. Social signaling alone will not lead to change; action is needed. This call to action is for everyone who is building an LSD or part of an LSD community source.

Conclusion

Both Lido and Rocket Pool has made significant strides in the Ethereum staking landscape, each offering unique solutions to the challenges of Ethereum 2.0 staking. However, based on recent developments and growth metrics, Rocket Pool appears to be gaining an advantage.

Rocket Pool's recent deployment on zkSync Era, a first for any Ethereum liquid staking protocol, demonstrates its commitment to innovation and user-centric solutions. This move, along with its rapid growth in rETH supply and a significant increase in market share, positions Rocket Pool as a strong contender in the Ethereum staking space.

While Lido maintains a substantial amount of staked ETH, its slight decrease in market share and concerns about centralization present challenges. However, Lido's robust development community and pioneering liquid staking solution should not be underestimated.

Ultimately, Rocket Pool seems to have the upper hand in this comparison, given its innovative approach, commitment to decentralization, and recent strategic moves. However, the Ethereum staking landscape is dynamic and ever-evolving, and both protocols have the potential to lead in different areas.

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